The University of Chicago Law School Faculty Blog

Student Blogger - Workshop on Judicial Behavior: Daniel E. Ho (Stanford University)

Some of the findings simply confirm our intuitions.

The American Civil Liberties Union is, to say the least, active when it comes to lobbying the United States Supreme Court.

The Christian Law Society is, conventionally speaking, politically to the right of the Court.

Yes, some of the data presented at the Nov. 17 Workshop on Judicial Behavior is of the could’ve-guessed-that variety. However, there is certainly value in the fact that someone has finally taken the time to collect and examine data related to that most curious of legal animals, the Supreme Court amicus brief, and put hard numbers to those intuitions.

That someone is Stanford University Law School professor Daniel E. Ho, along with UVA law professor Joshua Fischman and law student Alexandra Dunworth, recently completed an extensive study of amicus briefs filed in Supreme Court cases. The study began with briefs filed in 1979, and collected data on positions taken in all of them through 2006. This covers the period when the availability of such briefs in the Lexis database is most comprehensive.

An amicus brief, as most in the legal community know, is a brief filed by an outside party  supporting one or the other party in a dispute that reaches the Court (amicus briefs are also filed in circuit courts). Ho’s paper, “The Myth of Policy Voting: What Amici Tells Us About Law,” is based on data mined from a study of 14,000 briefs filed by more than 600 amicus groups over nearly three decades. The final results, charted exhaustively in the paper, focus on about one-hundred of the most active filing groups, including the ACLU (430 briefs), National Association of Criminal Defense Lawyers (262), and the National Association of Counties (242).

To be sure, some of the results were predictable.

“Simple intuition,” Ho himself admitted, “underscores the approach of the paper.”

But that doesn’t mean that there were no surprises emerging from the massive data analysis.

“The fact that overwhelmingly all of these groups land either to the left or to the right of the Court was a surprise to us,” Ho said. “We thought there may hae been more moderate groups.”

For example, even in unanimous Court decisions, interests groups remain active. An amici is 30 times more likely to disagree with a unanimous decision than a single justice is to write a lone wolf dissent.

Why hop on board that kind of lost cause?

One hypothesis: mobilization. Filing a losing brief could be a way to mobilize support amongst potential donors and members of the group.

This may be true in those aforementioned unanimous decisions, when interest groups like the ACLU stand little chance of swaying the Court, but still expend resources writing and filing a brief.

Charted according to the data, the nine justices, even supposedly reliably partisan justices like Antonin Scalia and John Paul Stevens, were all situated squarely in the political center, with the amici stretching out far in each direction on the spectrum.

The rise of the amicus brief is a relatively recent phenomenon. In the 1980s, an amicus brief was filed in approximately 74 percent of Supreme Court cases. Since 2000, that number has soared to 95 percent.

There are also, today, more amicus briefs filed in each individual case than ever before. In the 1980s, there were just under four amicus briefs, on average, filed in each case. By the 2000s, that figure was nearly eight.

Two cases, an affirmative action challenge regarding the admissions process at the University of Michigan and a Pledge of Allegiance-centered church-and-state case in suburban Chicago, drew a combined 206 amicus briefs.

During the workshop, Ho’s data and conclusions were subjected to much scrutiny by many of the judges and scholars in the audience. For example, the study excluded briefs filed by influential government entities like the Solicitor General as well as administrative agencies. In theory, those briefs may be more valuable because they are filed for pure policy purposes, and for mobilization.

Perhaps most humorously, Seventh Circuit Judge Richard Posner expressed contempt for one illustration of the project, using a 2008 New York Time Magazine piece by George Washington law professor Jeffrey Rosen that relied on statistics about the Chamber of Commerce, which claimed to reveal the Court’s pro-business bias.

“He’s a journalist!” Posner snarled. “You’re a serious academic.”

Regardless, the study provides one way to measure the political impulses of the justices against a baseline of partisan interest groups.

And for those who see pure jurisprudence, separated from political concerns, as the ideal, the results are promising.

As the paper concludes: “With this rich data, we have shown that the justices are either centrists or discernibly not raw policymakers.”

Student Blogger - Public Law & Legal Theory Workshop: Jill Lepore, Dead or Alive

Karen Ann Quinlan was twenty-one years old on the night she went into a coma.  After mixing valium and alcohol, Quinlan stopped breathing, and by the time she arrived at the hospital, she had gone thirty minutes with no oxygen to the brain.  Barely alive, she was put on a respirator and feeding tube as she steadily slipped into a deeper coma.

Over the following three months, Karen Ann lost weight and shriveled into a fetal position only to sleep, wake and spasm. Her parents, Joseph and Julia Quinlan, along with their priest decided to stop life support, but the doctors refused. Joseph and Julia petitioned the court for the right to remove life support, and their case, In the Matter of Karen Quinlan, sparked a national debate about the government's role in life and death.

The Quinlan family's story and trial is the setting for Jill Lepore's paper, Dead or Alive: Matters of life and death and the American body politic. Lepore, the Kemper Professor of American History at Harvard University and a staff writer for The New Yorker, discussed the paper at the Public Law & Legal Theory Workshop on November 12, 2010, with faculty and students.

The American Tradition: Political Paranoia

Among the many topics highlighted in the paper is the trend towards political paranoia and conspiracy fears surrounding life and death. At the time of the Quinlan case, a majority of Americans believed the decision to continue life support rested with the family members. After Quinlan and Roe v. Wade, a new fear sprouted, namely the fear that the government, courts and politicians are conspiring to refuse medical care and euthanize the disabled, sick, old and unwanted members of society. 

Lepore explains how the life and death fascination transitioned into domestic policy issues that have captured public attention since the 1970s: abortion, capital punishment, contraception and health care. It is now commonplace for political parties to sling accusations that evoke difficult questions about life and death.

The Right to Life, Liberty and Property

According to Lepore, the American Revolution was focused on liberty. The Patriots feared and equally profited from conspiracy theories about British tyranny stifling all natural rights to liberty. The loyalists also tried to show that they actually were the liberty bearers and argued that the Patriots were invoking liberty only to gain power. At the time of the Boston Tea Party, the paranoia had reached its peak after the British government imposed a tax on tea that was viewed as oppressive and restraining liberty.

In the nineteenth century, property became the heart of American politics and paranoia. Although slavery had been a sensitive subject for some time, the paranoia sprang up just before the Civil War. In Dred Scott, the Supreme Court voiced its fear that allowing slaves a safe haven in the north might give third parties an incentive to deprive Southern citizens of their right to property. John Brown did just that after kidnapping and releasing slaves in 1859.

In the 1960s, the locus of death moved. People no longer died in their beds at home, but spent the remainder of their life at a hospital. Death became known as a struggle with hospitals, doctors and insurance companies. As medicine and technology improved, death became less acceptable and became, also, the next American obsession.

The Right to Die

At trial, the Quinlans were unable to establish a Constitutional right to die. The family appealed, however, and the New Jersey Supreme Court reversed.  The Court held that a family may remove life support when there is no reasonable possibility of recovery.  After the Quinlans asked the doctors to remove the respirator, the doctors slowly weaned Karen Ann off until she breathed by herself. Karen Ann lived for another nine years before dying of pneumonia.

Comments

One commenter drew a connection between the current obsession with life and death and the conspiracy theories surrounding President Obama's birth place. Another noted that some opposition and concerns about abortion and ending life support may reflect a legitimate and good faith concern about the threats of industrialized medicine in modern society.  Lepore argued in response that the paranoia may not be generated by individuals' difficult choices or beliefs, but rather by the political parties' exploitation of the current uncertainty surrounding life and death to further a political agenda.

Student Blogger - Fall WIP: Anup Malani explores the information value of inaccurate courts

"The perfect," Voltaire wrote, "is the enemy of the good." This is frequently taken to mean that, since perfection is an unattainable ideal, its pursuit would be wasteful and, ultimately, futile. Instead, we should be satisfied with some suboptimal state of affairs. But what if perfection were attainable, and what if achieving it didn't require ruinous levels of expenditure—could it be possible that we would nevertheless still settle for, or even prefer, imperfection? It is exactly this argument that Professor Anup Malani advances in his paper Does Accuracy Improve the Information Value of Trials?, delivered during last Thursday's WIP talk. Written with Professor Scott Baker of Washington University in St. Louis Law School, the paper suggests that, from a social welfare perspective, we should tolerate somewhat inaccurate trials, even if it were costlessly feasible to improve courts to a level of perfect accuracy.

 

From the litigants' perspective, perfect trial accuracy would seem to be an inarguably good thing, as innocent parties will always be found innocent and guilty parties will always be found guilty. Furthermore, from a broader societal perspective, the threat of appearing before a perfectly accurate court seems like it would increase the ex ante incentive to comply with the law. Yet trials do more than vindicate private rights and provide a deterrent for wrongdoing—they also generate valuable information that parties not directly involved in litigation use to make important decisions. It is this function that, in Professor Malani's view, would be significantly undermined by hypothetically perfect courts.

 

The reasoning behind this argument is deceptively simple. Imagine a world in which there are "good" firms that only make safe products and "bad" firms that only make unsafe products, and further imagine a world in which courts can perfectly distinguish between the two. In such a world, it stands to reason that only good firms will ever go to trial. Along this dimension, then, perfectly accurate courts have increased the amount of information available to consumers about the identity of good firms. Counteracting this informational gain, however, is the fact that in such a world bad firms would never go to trial—instead, they will always settle rather than have their true nature conclusively revealed in court. At first blush, this would seem to divide the universe of firms into two distinct classes—those that go to trial and those that don't—and one might conclude that consumers could infer the quality of the firm based on its inclusion in one or the other class. But because settlements are almost universally accompanied by a non-disclosure agreement, and because they are far less likely to garner news coverage than guilty verdicts, consumers will be unequipped to differentiate bad firms that always settle from good firms that have never been sued—especially if the assumption that not all good firms can go to trial is true, which it clearly is in a world without advisory opinions and a limited number of judges and juries.

 

With imperfect courts, on the other hand, bad types will risk going to trial with some positive probability in the hopes of being falsely exonerated. Even given the looming chance of false exonerations, imperfect courts will still be generating useful information so long as they correctly convict bad firms more often than they wrongly convict good ones. In this way, consumers can only benefit from the information generated by trials so long as they are willing to tolerate a certain level of mistakes.

 

This paradoxical result leads to a number of normative implications, many of which were expounded upon during the Q&A session following Professor Malani's talk. First, courts should be more tolerant of inaccuracy the more important victim precaution is relative to precautions taken by the liable firm. Professor Malani points out that this is analogous to the effects of strict liability versus no liability on the level of victim precautions as discussed by, among others, Judge Posner, though with a key difference. Whereas potential victims will increase their level of care as the level of firm liability decreases, there may be a point at which lower trial accuracy so reduces the information available to consumers that they are no longer able to take rational precautions. Because of this, Professor Malani made clear that he does not advocate less accuracy, only that the optimal level of accuracy is somewhere short of perfection. Second, Professor Malani suggests that a rule either banning settlement or mandating the disclosure of the terms of settlement would improve social welfare, and would even be preferred by producers before they learned their type. Finally, the information value of trials, Professor Malani argues, offers a novel reason for supporting the law's historically greater tolerance for mistaken exonerations than mistaken convictions that does not heavily rely on contentious value judgments.

 

The hypothetical world of perfectly accurate courts raises some interesting questions about the world of imperfect courts that we actually inhabit. For instance, how would more accurate courts influence the incentive of plaintiffs to litigate? Would this change offset the increased incentive accurate courts give defendants to quietly settle? How can one tell, on the margin, whether a new procedural rule meant to improve accuracy actually increases or decreases the amount of information available regarding the identity of bad firms? And how do different liability and damage rules affect the return to accuracy—that is, does the change in probability of suit due to legal rules or damages measures, and the extent to which bad types get sued more than good types, change the relationship between accuracy and total information produced by litigation?

 

Professor Malani is likely to tackle these and other questions in subsequent articles. The power of the argument that inaccurate courts are preferable to perfectly accurate ones is that in can be extended to scenarios beyond just products liability litigation. Indeed, Professor Malani contends that it can be applied to any legal case where third parties rely on trial outcomes to make better-informed decisions, such as licensors of patented technology and potential employers of convicted felons. Furthermore, the model can be extended to scenarios where individuals learn from voluntary audits by third parties where the third party lacks the capacity to monitor everyone, such as SEC investigations of securities fraud, or FTC consumer product reviews. Thanks to the model's wide applicability, Professor Malani plans to further refine this powerful argument in future scholarship. 

Student Blogger - Workshop on Judicial Behavior: Sara C. Benesh (University of Wisconsin-Milwaukee)

This past summer, I worked as a judicial extern in the chambers of Judge Joseph Van Bokkelen, in the United States District Court for the Northern District of Indiana. One of the first complaints I was assigned to untangle was a pro se litigant’s suit against his employer.

The plaintiff’s frustration was evident. He clearly believed he has been on the receiving end of an intolerable wrong. But his legal savvy was nonexistent, and each amendment to his complaint served only to amplify his anger while doing little to identify an actionable legal claim.

Still, I sat in the office of the judicial clerk familiar with the case, both of us talking through every aspect of the claim to make sure we didn’t end up dismissing a legitimate complaint that only lacked the benefit of an experienced advocate to more clearly isolate and articulate it.

“If only people could see us in here, taking their complaints seriously,” he said to me at one point. “I think that they would be so much more satisfied that they received a fair hearing.”

‘An absolute crime’

I thought about that experience last Wednesday while listening as University of Wisconsin-Milwaukee political science professor Sara Benesh presented her work attempting to discern Americans’ perceptions about the lower federal courts. The discussion, which took place at Northwestern University Law School, was part of the ongoing Judicial Behavior Workshop jointly operated by the law schools at the University of Chicago and Northwestern.

My experience this past summer was at the U.S. district court level, which Benesh says that a lot of Americans are actually familiar with. Benesh is hoping to earn a grant to commission an extensive study of American attitudes and familiarity with circuit courts in the federal system. Similar existing studies usually focus on the Supreme Court exclusively. The preliminary study that Benesh cited in her discussion and her accompanying paper, which she collaborated on with Wellesley College’s Nancy Scherer and George State University’s Amy L. Steigerwalt, was based on a small sample size of suvey respondents, along with a student experiment.

An extensive study of American opinions on and familiarity with lower federal courts, Benesh said, demonstrates a gaping hole in the current policial science academic literature.

“We know absolutely nothing about how people feel about the circuit courts,” Benesh said. “That’s an absolute crime.”

Compared to other American political institutions, and large institutions in general, the Supreme Court has largely been insulated from public cynicism. Not that the Court is completely immune to public ire. In the study Beresh based her paper on, 23 percent of respondents agreed that, “if the U.S. Supreme Court started making a lot of decisions that most people disagree with, it might be better to do away with the Supreme Court altogether.”

But that pales in comparison to the outright anger generated toward the most visible members of the other two branches of the federal government. Even the most controversial Supreme Court decision in recent memory, the Bush v. Gore opinion that ended the 2000 presidential election, did little to generate widespread dissatisfaction with the Court since Americans on both sides of the political divide canceled each other out. By contrast, Benesh noted that every time a United States President makes a big decision, it eats away at his public approval rating. And one needs to look no further than the plight of Senate mainstays like Harry Reid this fall to get some understanding of the storm-the-Bastille mentality that can take over when voters become frustrated with Congress.

“With politics you see ugliness, you see log-rolling and money and lobbying and backroom deals,” Benesh said. “But to know the Supreme Court, which is more secretive, is to be in love with the symbolism.”

There are many reasons for the gap between the public’s support of and respect for the Supreme Court and its support of and respect for lower federal courts, particularly Courts of Appeals. Benesh believes that a lot of those reasons can be boiled down to sheer familiarity. While we are frequently informed of ominous-sounding studies that find that more Americans can name Disney’s seven dwarves than, say, three current Court justices, people are at least familiar with the instititution itself, even if they can’t cold recall members of the bench at any given time.

“The U.S. system,” one audience member remarked, contrasting it with less hierarchical systems in some European nations, “makes it easy to believe that the highest court has the wisest people.”

A question of legitimacy

Further data on the lower courts is needed, said Benesh, not just to satisfy curiosity but to answer a more overarching question.

“Why do people listen to these courts?” Benesh said. “It seems like they do. There’s not a widespread noncompliance issue. It’s important to understand where this legitimacy comes from.”

For people who have had direct exposure to the lower courts, it is not difficult to understand where the legitimacy flows from. The federal building I worked in this past summer, just a few minutes from the South Side in Hammond, Ind., was a modern-day fortress. The massive entrance lobby was stone gray and immaculate. The courtrooms themselves were cavernous and, on a smaller scale, steeped in the same kind of symbolism that helps make the Supreme Court such a hallowed American institution.

But most Americans are not filing lawsuits in federal court or attending federal sentencing hearings. So it is vital, said Benesh, to understand from where precisely the legitimacy of the courts derive, and to locate which leaks in the dam have to be patched to ensure that legitimacy going forward.

“The thing that was most troubling to me,” she said, “was I think the most important questions were questions about the length of tenure and selection, because that defines the independence of the institution. And those were the questions people knew the least.

“That bothers me. The fact that they can’t name the chief justice doesn’t bother me. But that they don’t understand one of the most important protections the Framers gave to the judiciary troubles me.”

The ultimate source of legitimacy, according to Benesh, was one with which I am intimately familiar - at least at the district court level.

"People don’t get mad if they win or lose," she said of the Court of Appeals, "as long as they feel like they got treated fairly."

Student Blogger - Public Law & Legal Theory Workshop: Politically Motivated Distribution of Federal Expenditures

At the Public Law and Legal Theory Workshop on October 27, 2010, Sanford Gordon from the Wilf Family Department of Politics of New York University answered questions about his paper, Executive Control v. Bureaucratic Insulation: Evidence from Federal Contracting, which examines political control over bureaucratic institutions and the influence that politics can have on spending, using the 2007 GSA scandal as an empirical test. The paper can be found here.

What influence do elected executives have on government expenditures?

In the paper, Gordon evaluates the amount of influence that political actors can have on government expenditures by an officially neutral bureaucracy. This inquiry requires an understanding of an executive's campaign strategy and the executive’s beliefs as to where federal money is best spent. In other words, executives must decide which voting districts they strategically wish to capture by awarding government expenditures in advance of elections. There are disagreements as to whether a political party's best strategy would be to target core constituencies, marginal constituencies, or a combination of the two.

Is an executive's chosen campaign strategy furthered by autonomous government agencies? If an agency is sufficiently insulated from the desires of a politically motivated executive, the risk is small. However, bureaucrats often are appointed to their position by a political party for their strong allegiance or ability to further the political party's goals. On the other hand, the agencies may be reluctant to set aside their perceived independence and neutrality in order to benefit their elected superiors and/or funnel federal money away from otherwise deserving recipients. Additionally, the passage of the Hatch Act prohibits many federal employees from using their position to influence elections. Lastly, there is a question of how much discretion any individual bureaucrat has to award federal money, given the bureaucratic process of most agencies.

Gordon uses the 2007 General Services Administration (GSA) scandal and exposure to explore this topic using the details of executives priorities and the subsequent federal expenditures made by GSA.

The Scandal

After the midterm elections in 2006, the Republican party lost the majority in both the House and Senate, and many Democratic candidates also replaced incumbent Republican state governors and legislators. A few months later, a deputy from the White House gave a powerpoint presentation to the General Services Administration (GSA), which is generally responsible for assigning contracts to private vendors for supplies or building acquisition for other agencies of the government (managing $500 billion in Federal Assets¹). The presentation laid out polling data from the 2006 elections to 40 GSA administrators. Based on the data, the presentation labeled voting districts as "defense" or "targets" in the 2008 election. At the conclusion of the presentation, Lurita Doan, a GSA administrator, was reported to ask "How can we help our candidates?"

The presentation and Doan's statement were subsequently leaked to the The Washington Post, which exposed the scandal on March 26, 2007. The exposure led to negative publicity for the Bush administration and the eventual resignation of Doan who was facing Hatch Act violation proceedings.

The scandal shows the executive attempting to politicize the GSA, or, in other words, using federal contracting for Republican electoral purposes. In this paper, Gordon takes advantage of the transparency offered by the scandal to evaluate the influence an executive's electoral goals have on bureaucratic allocations of federal expenditures. The executive priorities laid out in the powerpoint offer a clear sample group to evaluate the effect of attempted politicization on subsequent federal contract awards by GSA.

Data and Analysis

Gordon focused on the effect of subsequent GSA contracting in districts that were labeled "target" or "defense" in the powerpoint. GSA is comprised of two major bodies: the Federal Supply Service (FSS) and the Public Building Services (PBS). The two bodies differed in their responsiveness to the presentation. While PBS clearly responded and increased federal contracts granted to vulnerable Republican districts after the presentation, FSS's actions are scattered and largely unsusceptible to the politicization. Gordon finds that this is probably due to a variance in discretion and relative market competitiveness for the two bodies. GSA is structured so that a bureaucrat is more constrained when a contract is more heavily bid for, and it is assumed that FSS is generally more constrained by this competitive bidding.

Given that GSA is a large bureaucratic institution, it is perplexing to imagine how an executive directive could be so effective at influencing PBS contracts in such a short period of time (59 days before media exposure and subsequent decrease in vulnerable district expenditures). Gordon offers a few explanations for this, but ultimately finds that GSA increased the dollar amount for existing agreements with vendors as opposed to soliciting new ones.

Conclusion

The White House was able to politicize GSA for electoral advantage, and the data shows no rational anticipation by employees of the federal contracting strategy. Thus, the Bush White House engaged in active politicization, or coordination with executives, as opposed to passive politicization, where executives appoint loyalists who work to further electoral goals independently and with little coordination.

In addition, Gordon's findings suggest that measures of electoral vulnerability perceived by a political party are based on some expert or unknown criteria (not simply previous vote margins). Finally, the results show that the success of politicization is dependent on the agency's constraints and discretion.

Discussion and Comments

At the workshop, there was a lot of discussion surrounding the proper control group for the data. Should the control group be districts that were considered "safe"? Gordon indicated that the analysis is dealing primarily with the expert White House valuation of districts and the change in spending in those districts that were indicated.

The comments of Lurita Doan after the presentation were also discussed. Gordon suggested that it seems that but for those comments, the presentation would not be a Hatch Act violation, because it was informational and the effort to politicize was implicit rather than explicit.

The discussion and paper seem to suggest that there is a lack of agency insulation from politics. Instead, if we want to deter politicization, there needs to be less agency discretion--at least in the realm of government expenditures. Although the Hatch Act is intended to combat this problem, there is a question of how often it is enforced and if it is actually effective at deterring federal employees from giving their political parties advantages. Finally, it would be helpful to see the correlation between politicization and candidate success.

Student Blogger - Fall WIP: Alicia Davis Discusses Compensation for Securities Fraud

Absent a crystal ball, diversification is one of the best tools available to the prudent investor. The insight that drives diversification is pretty simple: while there's a chance that the price of any one stock may plummet, it's unlikely that the same will happen to multiple stocks, and some are even likely to rise.  But if most investors are in a risk-neutral position because of diversification, should the legal system have a rule that compensates investors who suffer a loss due to securities fraud?  In other words, isn't loss due to fraud therefore just another form of risk that savvy investors ought to be able to minimize through diversification?

In her paper Are Investors' Gains and Losses from Securities Fraud Equal over Time? Theory and Evidence, presented at last Thursday's WIP talk, Professor Alicia Davis evaluates the claim that, for any single diversified investor, gains and losses from fraud will net out to zero over time. Using a combination of probability theory and data generated by computer-simulated trading, Professor Davis identifies several significant flaws in the notion that fraud-related losses and gains perfectly cancel out one another over time, suggesting that the legal rule of compensation might still have a useful role to play in securities regulation.

Critics of compensation, Professor Davis notes, commonly analogize the risks of trading fraud-tainted stocks to participating in a coin flipping game where the player wins $1 for heads and loses $1 for tails. The more the coin is flipped, the more likely the player will break even. While this is mathematically true in a limited sense, Professor Davis demonstrates that, thanks to probability theory, it is not the whole truth. As the number of flips goes up, the range of possible outcomes also increases. That is, after two flips, the player can only be up $2, down $2, or neutral. But after, say, a million flips, the player could be up $1,000, down $5,000, or any number of other possibilities. Therefore, while the expectation of having a roughly equal number of heads and tails increases with the number of flips, the chance that the player actually, exactly breaks even is, in Professor Davis's words, "vanishingly small."

Compensation critics might respond by saying they aren't concerned with investors breaking exactly even, but instead believe that being near break-even—say, within a few percentage points—is good enough. Anticipating this response, Davis notes that, in order to be 95% certain that the outcome will fall within +/-1% of break-even, an investor would need to make 10,000 trades—a number far greater than the 700 trades an average mutual fund makes over a ten-year period. Most investors, both individuals and institutions alike, are therefore likely to fall far short of reaching any degree of certainty.

Furthermore, Professor Davis notes that, unlike the coin flip game, gains and losses from fraud-tainted stocks are unlikely to be symmetrical. Because of this, an investor could break-even in the sense that the numbers of winning and losing trades are equal, but nonetheless experience a net loss. This point leads into the second half of Professor Davis's paper, a computer-simulated study of the risks of trading fraud-tainted stocks. By varying characteristics such as trading strategy, initial capital invested, percentage of initial invested capital held in cash, number of stocks in portfolio, and annual turnover rate, Professor Davis constructed 14 simulated investor types representing both institutions and individuals. She then placed these investor types in a simulated trading universe, lasting ten years and comprised of the nearly 15,000 stocks that were publicly traded between 1996 and 2006. Using data drawn from securities fraud class action settlements from the same period, Professor Davis populated this universe with 653 fraudulent stocks.

At the conclusion of the simulation, Professor Davis noticed some striking results. First, the absolute number of fraud-tainted stocks an investor trades is rather low—indeed, the most active trader, with more than 3,100 trades, only traded on average 29.4 fraud-tainted stocks. Despite this low number, most investors are nevertheless almost certain to encounter a fraud-tainted stock at some point, and often with the potential for significant losses. Generally speaking, institutional investors are better protected against fraud than individuals, but both groups are at risk of substantial fraud-related losses.

This insight becomes particularly worrisome when one considers the "risk of ruin," or the possibility that an investor will exit the market after suffering a catastrophic loss, even if there is a theoretical possibility of eventually recouping that loss and breaking even. Investor types in Professor Davis's study were programmed to remain invested in the market for the entire ten years. Actual investors have different operating parameters, and the "risk of ruin" suggests that actual losses could possibly far exceed those predicted by Professor Davis's model.

Professor Davis concludes her study by noting that its results do not "necessarily lead to clear policy prescriptions." However, the study does raise some provocative points, many of which were elaborated upon during the Q&A session following Professor Davis's presentation. For instance, if securities regulation ought only be focused on safeguarding overall investor profits, then it may be worth reconsidering fraud victim compensation. The study indicates, however, that securities fraud raises troublesome distributive concerns, and the current system of compensation may accurately reflect society's desire to protect against asymmetrical harms—that is, investors are generally more concerned with avoiding losses than they are with experiencing gains.

Building on an insight first observed by Frank Easterbrook and Daniel Fischel, Professor Davis further suggests that eliminating compensation may have a negative effect on allocative efficiency, as without the confidence that they can recover some of their fraud-related losses, investors might expend resources that could be put to more productive use than protecting against fraud, or may even leave the market altogether. Furthermore, the study's conclusions point to future inquiry that could contribute to the scholarly debate about compensation, such as comparing the investor types most likely to experience losses from fraud with the plaintiffs most likely to win compensation in securities litigation.

While disclaiming any policy prescriptions, Professor Davis ably shows that there is more thinking to be done on the subject of securities fraud victim compensation.